According to the ‘additionality’ principle, Multilateral Development Banks (MDBs) such as the World Bank Group’s private sector arm, the International Finance Corporation (IFC), should make a contribution beyond what is available in the market (either financial or non-financial or both) while avoiding crowding out private sector players. But what does additionality exactly mean, and how can it be measured?
The MDB’s Harmonized Framework for additionality in Private Sector Operations (2018), refers to “key financial and non-financial inputs brought by MDBs to a client and project to make the project or investment happen, make it happen much faster than it would otherwise, or improve its design and/or development impact”. The Framework also clarifies that additionality is different from development impact, which captures development results that the project is expected to deliver whereas additionality is the value the MDB adds through its activities, which leads to development results.
While the concept of additionality is used by many MDBs as an eligibility criterion for private sector projects, the concept is still not well defined nor applied in most public sector interventions.
Yet, even in the private sector space there was no common understanding of additionality, as each MDB follows its own approach. That is why in 2020, the Evaluation Coordination Group (ECG), an entity dedicated to harmonizing evaluation work among MDBs, set up a Working Group to look into the definitions, assessment methods, and reporting of additionality by MDBs and commissioned a report on the topic. The main objective of this stocktaking exercise was to assess the current approaches to additionality within and across MDBs and contribute to ECG members’ understanding of the treatment and evaluation of additionality.
Findings of the additionality stocktaking exercise
The stocktaking study looked into the practices of the Asian Development Bank (AsDB), the African Development Bank (AfDB), the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), the Global Environment Facility (GEF), the International Financial Corporation (IFC) , Commonwealth Development Corporation (CDC, now British International Investment), Deutsche Investitions und Entwicklungsgesellschaft (DEG), the Dutch Entrepreneurial Development Bank (FMO) and KFW Development Bank.
The resulting report delivered three main findings.
First, financial additionality (e.g. financing on terms and conditions not available in the market) has been the main additionality claimed for years as it is embedded in the MDBs’ mandates. The concept is still relevant nowadays, but the financial additionality claims are difficult to validate.
Second, non-financial additionality has been gaining relevance over time, particularly in markets where there is availability of funding from private financiers or where there’s high MDB funding. MDBs’ ‘uniqueness’ has indeed shifted towards non-financial additionality including for example political risk cover, knowledge transfer, capacity building, or standard setting.
Third, the conceptualization, measurement, and attribution of additionality are difficult to evaluate. Some challenges include variations in the quality of evaluations of additionality that arise over the specification of its sources, supporting evidence, counterfactual assessments, delineation of expected effects, use of indicators, benchmarks, and timings. On the one hand, financial additionality claims suffer from a lack of evidence, making them difficult to evaluate. On the other hand, non-financial contributions are easier to assess but are hampered by a lack of clear expectations of value-added, poor monitoring of implementation, and few benchmarks. Moreover, the non-financial additionality elements often emerge only as projects get underway. Since a reliable ‘test, track and trace’ system is needed for proper assessment and attribution, the monitoring of additionality claims is generally weak, patchy, and uncoordinated.
In addition to the above, evaluators face a number of issues when evaluating additionality, be it financial or non-financial, such as clarity and coherence, operational judgements, ambiguous areas, monitoring and reporting, trade-offs and tensions, and finally strategic concerns.
Setting the way forward
During the 14th European Evaluation Society (EES) Biennial Conference recently held in the Danish capital, Copenhagen, evaluators around the world gathered to discuss actions and shifting paradigms for challenging times. One of the sessions chaired by the World Bank Group's Independent Evaluation Group (IEG) focused precisely on evaluating the additionality of MDBs and analyzing the ECG's stocktaking report. Together with EIB and EBRD representatives, IEG touched on the similarities, differences, gaps and potential synergies in MDBs’ mandates, operational approaches and evaluation approaches to additionality, while identifying best practices.
What is next for additionality and its evaluation is still unclear. Evaluations of additionality have been sparse until recently, although more are planned for the future. However, greater consistency in approaching additionality through common definitions of its sources, use of agreed indicators and benchmarks, as well as consistent levels of ambition could benefit evaluators, policymakers, and the public. At the same time, every MDB would benefit from common financial market databases while transparency on additionality could be enhanced via public disclosure that supports feedback and interest in lessons derived from evaluations.